Oil Futures Down on Trade Concerns

WASHINGTON, D.C. (DTN) -- The front month contracts for oil futures on the New York Mercantile Exchange and Brent on the Intercontinental Exchange moved lower overnight into early Wednesday trade on concern over U.S.-China trade tensions following a speech by U.S. President Donald Trump at the United Nations, mostly bearish industry statistics released late Tuesday, and reports that Saudi Arabia reached production capacity of 11.3 million bpd ahead of schedule.

In early trading, NYMEX November West Texas Intermediate futures were down $1 near $56.30 bbl, and ICE November Brent was $1.25 lower at $61.85 bbl. NYMEX October ULSD futures were 3.15 cents lower near $1.9360 gallon, and October RBOB futures fell 3.5 cents to near $1.6195 gallon.

Overnight reports indicate Saudi Aramco has restored oil production capacity to 11.3 million bpd following the September 14 attack on its oil facilities, a faster rate of recovery than expected. Saudi Energy Minister Prince Abdulaziz bin Salman previously indicated Saudi production capacity would reach 11 million bpd by the end of September and 12 million bpd in late November.

Saudi's energy minister and Amin Nasser, the chief executive of state oil company Aramco, said the 5.7 million bpd in output shut-in by the attack will be fully back online by the end of September. Reports indicate crude output from the Khurais field is now at 1.3 million bpd and the Abqaiq oil processing plant is currently at about 4.9 million bpd.

In addition to the Saudi recovery, the geopolitical risk premium in oil prices is modestly unwinding as the United States seems less likely to pursue retaliatory military action against Iran who Washington along with Saudi Arabia, Great Britain, Germany and France blame for the attack. During a speech at the UN General Assembly Tuesday, Trump said U.S. sanctions would remain in place for as long as Tehran continues to destabilize the Middle East region. After the Sept. 14 attacks, the United States placed sanctions on Iran's central bank.

Trump also lambasted China in his UN speech, accusing Beijing of currency manipulation and intellectual property theft and said he would not accept a bad trade deal with China. The strong language suggests little progress in U.S.-China trade war that rattled global financial markets for over a year.

Global equities are lower Wednesday, with Europe's Stoxx 600 down 1.2% in midday trading and Asian markets posted across-the board declines. U.S. stock market is also set for losses on Wednesday, further pressured after an impeachment inquiry was announced by House Speaker Pelosi late Tuesday.

Oil futures are also lower following domestic inventory data. American Petroleum Institute reported late Tuesday crude supply in the United States increased 1.38 million bbl during the week ended Sept. 20, missing calls for a draw of 1 million bbl. Industry data also showed gasoline stocks gained 1.95 million bbl versus estimates for a 1.3 million bbl increase while distillate inventories dropped 2.25 million bbl, nearly twice calls for a draw of 1.2 million bbl.

Market participants now await official supply data from the U.S. Energy Information Administration set for release at 10:30 AM ET.

Liubov Georges can be reached at liubov.georges@dtn.com

(BAS)